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Will Obama Keep His Word on a Government that Lives Within Its Means?

Friday, January 28, 2011 - 12:32 PM

WNYC

The president offered some straight talk during his State of the Union address on the relationship between our deficit, long-term debt problems and social welfare spending. He admitted that there would have to be sacrifices to bring our deficits under control, and that only working on non-military discretionary spending barely scratches the surface of the issue.

But what do the American people want to do about this? Normally you could just look at public opinion polling, but in this case, most polls are asking the wrong questions.

A poll is only as good as the questions it asks. This usually isn't much of an issue, as most polling firms take care to get the most accurate data they know how to get. The problem is some issues just aren't simple enough for straight yes or no questions. This is particularly the case when it comes to issues related to the debt, deficits, taxes and spending.

Even if you are talking to someone who thinks that taxes should go up, they very rarely think that they should go up for them. With so much misinformation and partisan spin flying around, most people are under the impression that a tax increase for people wealthier than them would cure all of our fiscal ills.

But this just isn't the case. And the massive tax increases it would take to fix the problem, without also trimming spending, are simply politically impossible. A serious, reality-based conversation on these issues must include both spending cuts and tax increases. But how can we tell what the people would choose if they knew this?

Thankfully some pollsters see this conundrum, and a recent New York Times piece takes a shot at getting a little closer to what the American people think if they're given more of an honest assessment.

For example, when asked how we should shrink our deficits, an overwhelming majority say we should cut our way out of it. Given the choice of a few options for Social Security that would help to "keep the program financially sound,” 66 percent said they'd prefer "reducing benefits for Americans with higher incomes", and 18 percent prefer "raising the age people start receiving full Social Security benefits,” with reducing scheduled benefit increases coming in with single digits.

Another poll, this one by Bloomberg, gave people options for what should be considered in trying to bring down the deficit. The choices that a majority thought should be “strongly considered” or “just considered” included “add a penny-an-ounce tax on sugar-sweetened drinks, meaning 12 cents for a 12-ounce can of soda,” with 57 percent thinking it should be considered, and “reduce annual cost of living increases for Social Security participants”, which 52 percent thought should be considered.

The option that the most (78 percent) thought should be considered, however, was “remove the cap on the Social Security tax so that wage earners who make more than $107,000 a year continue to pay into Social Security.” To put this into perspective, this would add around $111,000 in taxes for someone making a million dollars a year (an increase that would be split between the employer and the employee). This change, though, would only delay the point where social welfare spending goes into the red by about seven years.

In other words, whether Democrats want to admit it or not, the main problem is on the spending side. Unless you also increase the tax rate, there just aren’t enough people who make more than the $107,000 cap (in 2006, the cap covered 83.6 percent of the populace) to pay for the expected skyrocketing of costs coming from Medicare and Medicaid in coming decades.

The options available to us have not always been so stark. Had Democrats and Republicans saved the money that payroll taxes brought in as surplus over the years, we'd have a lot more time, and a lot less pain, in front of us today. But they didn't. They spent every...last...dime of it. The IOUs that the government has been collecting for this money are worth less than the paper they're printed on.

So what can we glean from all of this? The options that seem to have enough support in polls to actually pass could include a combination of removing the payroll tax ceiling, an increase in the Social Security eligibility age that would be spread out over several decades, give fewer benefits to the well off and slow the growth rate by pegging it to a more realistic measure of inflation. Along with cuts in military spending, reforms designed to slow the cost inflation of medical care and other less headline-worthy reforms, the projections from the president's Fiscal Commission show that we'd set ourselves back on a track towards fiscal sanity.

Both parties have known all of this for years. Each year we do nothing, which only makes the choices we have available to us more painful. Will the president put his political capital on the line to push for what needs to get done, or will this be just another example of a politician with a silver tongue telling us all the right words, before backing down when it really matters?

Solomon Kleinsmith is a nonprofit worker, serial social entrepreneur and strident centrist independent blogger from Omaha, Nebraska. His website, Rise of the Center, is the fastest growing blog targeting centrist independents and moderates. He is currently collaborating with other centrist independent and moderate bloggers on a news aggregation and social networking site, and is always looking for ways to help the independent groundswell as more and more people become disaffected with the two major parties.

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Comments [2]

Solomon Kleinsmith from Omaha, NE

>> The IOUs that the government has been >>collecting for this money are worth less >>than the paper they're printed on.

So why do the Chinese own so much of our Treasury bonds if they are worthless? Are you saying you think the Chinese are stupid? Clearly not.

=====================

I'm not sure where you got the idea that IOUs are bonds, but all they are are numbers in a ledger saying one part of the government owes money to another part. Bonds are interest bearing financial investments.

This is like comparing credit card debt to taking money out of your own savings account to pay for a bill, and promising to yourself you'll pay it back... then multiply that by a trillion. If you don't pay off your credit card, you'll get in serious trouble. If you don't pay off your loan to yourself, all you have is yourself to answer to.

Social Security is a pay as you go program. The IOU's are a phantom.

Jan. 31 2011 06:52 PM
Jack Jackson from Central NJ

>> The IOUs that the government has been >>collecting for this money are worth less >>than the paper they're printed on.

So why do the Chinese own so much of our Treasury bonds if they are worthless? Are you saying you think the Chinese are stupid? Clearly not.

The USG has been borrowing about 20% of the collected FICA taxes and using them to increase consumption. Now the Social Security fund will begin cashing in those bonds. Sooner than the projected 2017 now that the tax compromise is putting that surplus back into workers pockets! So the tax compromise has also cost the USG the surplus funds from FICA!

The short-term fix is to raise the amount of income that is subject to FICA withholding. Index it to median income, say 2.5x or 3x median, so that the caps can move up and down without legislative action. If I could I would let the company match or self-employed tax sunset at 2x median...

The long-term tax fix is to raise middle class incomes. These folks pay their taxes and don't nickel and dime to get the lowest marginal rate. Higher middle class incomes would increase Fed revenues far more than higher upper class revenues.

Jan. 30 2011 03:52 PM

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